Tax Appeals Outcome: Assessee partly successful for 2007-08, revenue successful for 2007-08, and partial success for 2008-09.

The appeals of the assessee for AY 2007-08 were allowed pro-tanto, while the appeal for AY 2008-09 was partly allowed for statistical purposes. The appeal of the revenue for AY 2007-08 was allowed.

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Issues Involved:
1. Set-off of unabsorbed depreciation before allowing deduction under section 10B.
2. Inclusion of traded goods in export turnover for deduction under section 10B.
3. Inclusion of deemed exports in export turnover for deduction under section 10B.
4. Exclusion of freight and insurance from export turnover and total turnover for deduction under section 10B.

Issue-wise Detailed Analysis:

1. Set-off of Unabsorbed Depreciation Before Allowing Deduction Under Section 10B:
The assessee was aggrieved that unabsorbed depreciation of Rs. 2,40,56,524 was set off against the profits of its undertaking claiming deduction under section 10B before allowing such deduction. The assessee relied on judgments from the Hon'ble jurisdictional High Court in the cases of CIT Vs Yokogawa India Ltd. and CIT Vs Tata Elxsi Ltd. The Tribunal noted that the AO had curtailed the claim of deduction under section 10B substantially and set off depreciation after computing the total income. The Tribunal found the issue required a fresh look by the AO in light of the cited judgments and remitted the matter back to the AO for reconsideration. Ground 1 of the assessee was allowed for statistical purposes.

2. Inclusion of Traded Goods in Export Turnover for Deduction Under Section 10B:
The assessee claimed that export turnover of traded goods should be considered while working out the deduction under section 10B, which was first made before the CIT(A). The CIT(A) rejected this claim, stating that only manufactured goods were eligible for deduction under section 10B. The assessee cited decisions from the Mumbai Bench and a Special Bench in support of its claim. The Tribunal noted that the claim was based on a decision from the Mumbai Bench, which allowed deduction on traded goods. The Tribunal found no amendment affecting the issue post-2002 and remitted the matter back to the AO for fresh consideration. Grounds 2 & 3 of the assessee were allowed for statistical purposes.

3. Inclusion of Deemed Exports in Export Turnover for Deduction Under Section 10B:
The revenue was aggrieved that the CIT(A) included deemed exports of Rs. 13,20,96,953 as part of export turnover for computing eligible deduction under section 10B. The CIT(A) had followed a previous decision in the assessee's favor for AY 2006-07. However, the Tribunal noted conflicting decisions, including a Co-ordinate Bench decision in the case of Granite Mart Ltd., which held that deemed exports were not eligible for deduction under section 10B. The Tribunal also referred to a judgment from the Hon'ble Kerala High Court, which held that inter-unit sales within SEZs are not treated as exports under section 10A/10B. Following the Kerala High Court's judgment, the Tribunal set aside the CIT(A)'s order and restored the AO's order, directing that deemed exports not be considered part of export turnover. The revenue's appeal was allowed.

4. Exclusion of Freight and Insurance from Export Turnover and Total Turnover for Deduction Under Section 10B:
The assessee contended that if freight and insurance were excluded from export turnover, they should also be excluded from total turnover. The Tribunal noted that the definition of 'export turnover' in explanation (iii) to section 10B(2) required exclusion of such expenses. However, the Tribunal agreed with the assessee's claim, citing the jurisdictional High Court's decision in CIT Vs Tata Elxsi Ltd., directing the AO to exclude these items from both export turnover and total turnover while computing the deduction under section 10B. Ground 3(b) of the assessee was allowed for statistical purposes.

Summary of Results:
The appeals of the assessee for AY 2007-08 were allowed pro-tanto, while the appeal for AY 2008-09 was partly allowed for statistical purposes. The appeal of the revenue for AY 2007-08 was allowed.

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